SEC to Develop Guidance to Allow Debt Buybacks in Auctions
 
March 24, 2008
 

On March 12, 2008, the director of the SEC’s Division of Trading and Markets testified before the Committee on Financial Services, U.S. House of Representatives, about the current turmoil in the municipal bond market. Hundreds of auctions for auction-rate securities issued by municipal issuers have failed to obtain sufficient bids to establish a clearing rate, which has caused issuers to pay “penalty” rates as high as 20 percent, at least until the next auction. In addition, investors cannot sell their holdings through the auction process until a successful auction.

Due to recent failures of auctions for municipal auction-rate securities, which are estimated to exceed $80 billion, the SEC has received requests to consider ways to assist issuers with an orderly exit from current market conditions.

Due to the immediacy and severity of the auction-rate market decline and implications for investors, the SEC is developing guidance designed to clarify that municipal issuers can provide liquidity to investors that want to sell their auction-rate securities without triggering market manipulation concerns. The guidance would be subject to appropriate disclosures, among other things, relating to price, quantity and other conditions, which may ease the burden of unusually high interest rates and facilitate an exit from the market for issuers and conduit borrowers.

http://www.sec.gov/news/testimony/2008/ts031208ers.htm